Group opposes Country Style bankruptcy plan

Taragon will ask the court to quash the current bankruptcy plan, which was accepted in a vote by creditors last month. Among the most serious allegations in the court documents is that Country Style officials "actively solicited proxies from the creditors to vote for the plan at the meeting," and "offered payments or financial dispensations provided that proxies were filed in favour of the plan."

The Toronto Star
March 7, 2002

Group opposes Country Style bankruptcy plan
Franchisees say company was less than forthcoming
Madhavi Acharya-Tom Yew

A group of would-be franchisees for Country Style Food Services Inc. will be in court this morning to fight a bankruptcy plan they say is unfair and unreasonable.

Taragon Financial Inc. will also ask the Ontario Superior Court of Justice for permission to bring legal action against Country Style officers and directors claiming breach of trust.

The group claims in court documents filed last month that the doughnut-shop chain did not disclose important financial information about the franchise, and that its court-appointed monitor, Deloitte & Touche, has a conflict of interest.

Taragon will ask the court to quash the current bankruptcy plan, which was accepted in a vote by creditors last month.

Among the most serious allegations in the court documents is that Country Style officials "actively solicited proxies from the creditors to vote for the plan at the meeting," and "offered payments or financial dispensations provided that proxies were filed in favour of the plan."

None of the allegations have been proven in court.

Pat Gibbons, president of Country Style, has publicly disputed Taragon's claims, while Deloitte has declined to comment, saying the matter is before the courts.

Taragon's efforts are likely to be supported by other unhappy franchisees, as well as by landlords who say that while they signed leases for as long as a decade, the company's bankruptcy filing has left them with a few months' rent.

Richmond Hill-based Country Style filed for bankruptcy protection under the Companies' Creditors Arrangement Act on Dec. 13, with plans to close one in four franchises.

The company won creditor approval for its restructuring plan on Feb. 18. The plan, which would pay creditors about 14 cents on every dollar owed, has not been approved by the court.

Taragon agreed in April, 2000, to be Country Style's licensee in Cuba and paid the company $85,000 (U.S.), which was to be held in trust as part of the deal, according to court documents filed Feb. 20.

By October, 2001, Taragon determined its business plans were untenable and tried to get its money back.

Country Style has returned $21,250 of the funds. "Only after the CCAA did Taragon learn that its development money was not put in a segregated trust," the court documents read.

Taragon also alleges that Deloitte, which served as auditor and consultant to Country Style, and now serves as bankruptcy monitor, is in conflict of interest by playing these multiple roles.

Among the other allegations is that Country Style has not disclosed its full financial assets. The franchise is "now apparently profitable," with "net cash flow of $1.2 million, a full $1 million more than projected," Taragon said in the documents.


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